Today’s interest rate hike of 75 basis points could harken a debt crisis for consumers and homeowners who bought on the edge of their affordability. The latest hike means the prime lending rate in South Africa will increase to 9.75%, from 9%.

However, property sector strategist at FNB Commercial Property Finance John Loos believes the interest rate hiking cycle could be coming to an end - but not before we find ourselves at a high of 10.25% by year-end.

Loos says FNB predicts rates could hit a high of 10.25 this year before stabilising next year. Loos says FNB expects that later this year Inflation should slow somewhat and with that “we can expect SA Reserve Bank's interest rate hiking to come to an end”.

“Prime of 10.25% is the peak we believe, and that it will go sideways at 10.25 unchanged through the whole of next year.”

The South African Reserve Bank's Monetary Policy Commitee (MPC) announced today its members have agreed on an "increase to the repurchase rate by 75 basis points to 6.25% per year, with effect from the 23nd of September 2022."

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This now effectively takes the interest rate back to the almost pre-pandemic level.

Samuel Seeff, chairman of the Seeff Property Group, says while the hike was largely expected, stability is now vital for the economy and market. He says deteriorating buying conditions will likely “push more people into the rental market”.

Given that there are stock shortages in certain areas, Seeff says further that we could start seeing rental rates rise which will be good for the rental market which has been largely flat over the last two years.

“The Bank now also needs to signal when the hiking cycle will come to an end and when we can expect rates to start coming down again,” he adds.

Dr Andrew Golding, chief executive of the Pam Golding Property group, echoed these sentiments saying that consumers in general are feeling the strain on household income, with the food and energy price shocks earlier this year creating an inflationary ripple effect across the economy.

“That said, the Bank has highlighted the fact that the key challenges facing the local economy are not the current level of interest rates and the cost of borrowing, but rather the ongoing infrastructure bottlenecks such as electricity and transport, as well as education.

“The Reserve Bank’s deputy governor, Dr Rashad Cassin recently suggested that the bank is attempting to move towards a more ‘neutral’ interest rate setting and would be attempting to avoid dampening economic activity as much as possible.”

He added that the MPC is “particularly concerned about anchoring inflation expectations to avoid external price shocks - such as recent food and energy prices - from becoming entrenched and filtering through to price setting in the broader economy”.

“Once it is clear that price pressures are subsiding again, it will be possible for the Bank to shift gear to a slower pace of interest rate hikes.”

“Realistically, the SARB is caught between a rock and hard place right now,” says Tony Clarke, MD of the Rawson Property Group. “They know full well the financial pressure that consumers are under, and how raising interest rates will affect them in the short term, but they also know how much worse things could get if inflation is left to spiral out of control.”

Clarke says that raising interest rates is a tried and tested method of controlling outsized inflation. However, it often makes life harder before circumstances improve.

“Homeowners will definitely start feeling the pinch as their bond repayments continue to climb, right alongside the rest of their everyday expenses,” says Clarke. “For some, there are going to be very difficult decisions ahead. Most households have very few luxuries left to cut back.”

Regional director and CEO of RE/MAX of Southern Africa, Adrian Goslett says the impact of these interest rate hikes might only be felt next year, especially if interest rates continue to climb at the next few announcements.

“Property market activity is still unusually high even after the last interest rate hike; so much so that many parts of the country are experiencing a seller’s market where demand far outweighs supply.

“This is possibly because interest rates are still lower than pre-pandemic levels of around 10%. It is possible that the effects of these interest rate hikes might only be felt after homeowners have had a few months of paying the higher debt instalments,” he notes.

In terms of the impact of the hiking cycle on the property market, Seeff says we are beginning to see a two-paced market emerge. While demand is still high on the one side, buyer hesitancy is increasing with deals taking much longer on the other side.

Aside from the spiking interest rate, Seeff says the deteriorating conditions in the country are not helpful. The power outages combined, poor economic data and macro events including the Ukraine crisis could be compounding buyer hesitancy.

Today’s hike hits immediately those homeowners with variable interest rate debt - in some cases adding thousands monthly to their bond repayment.

The interest rate hike is not only bad for homeowners but also for prospective home buyers as they will have a harder time qualifying at higher interest rates because it increases their monthly payments on buying a home.

Some homeowners got on the property ladder during Covid when interest rates were at the lowest point in decades.

Now, however, a succession of interest rate hikes since last November 2021 have seen them increase by well over 2.75% putting pressure on households who bought at the edge of their affordability.

Seeff says as a result of the interest rate hike, a home loan over 20 years at the prime/base rate will now cost an extra:

- R750 000 bond – extra R366 (repayment incr. from R6 748 to R7 114)

- R900,000 bond – extra R439 (repayment increase from R8 098 to R8 537)

- R1 000 000 bond – extra R488 (repayment incr. from R8 997 to R9 485)

- R1 500 000 bond – extra R732 (repayment increase from R13 496 to R14 228)

- R2,000,000 bond – extra R975 (repayment increase from R17,995 to R18,970)

- R2,500,000 bond – extra R1,220 (repayment increase from R22,493 to R23,713)

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